Prior to 2023, RSP has outperformed the S&P 500 by an average of 1.05% annually since its inception1. In 2023, RSP underperformed the S&P 500 as the performance of the Magnificent 7 has overshadowed the rest of the S&P 500. This has resulted in the S&P 500 reaching a record level of concentration, an unprecedented valuation and a shift towards growth. While the underperformance has been notable, we suggest three compelling reasons to consider RSP.
- High Concentration: The Magnificent 7 alone has driven 47% of the S&P 500’s one year return, leading to historically high concentration in the cap weighted S&P 500. The top ten names accounted for just over 33% of the S&P 500 – the largest weight since the late 1970’s.
- Stretched Valuations: The Bloomberg Magnificent 7 index’s P/E ratio was 43% higher than the S&P 500 Index at the end of March– 37.5 to 26.13. The high valuation of mega cap growth names has pushed the P/E ratio of the S&P 500 to a 23% premium to the S&P 500 Equal Weight Index (Equal Weight). This trend has pushed the S&P 500 to be “growth-like” with its constituent overlap with the Nasdaq 100 Index doubling over the last 10 years.
- Mean Reversion of Excess Returns Equal Weight is still recovering from its worst 6-month relative drawdown in the past 20 years (Equal Weight is currently lagging the S&P 500 Index over the past 6-months by 2.8%. This is compared to 11.2% at end of August 2023)4. During March market leadership broadened and Equal Weight outperformed the S&P 500 and the Magnificent 75. Over this period,RSP saw renewed interest with $2B entering in March and another $2.2B in early April6. Historically, performance mean reverts (cycles) over time and this current environment may be a potential opportunity to find exposure to the rewarded size and value factors.
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1 Bloomberg, RSP was incepted on April 30, 2003 from inception to the end of 2023 RSP returned 10.89% (at NAV), while the S&P 500 returned 10.35% From Inception to 2022, RSP returned 10.75% (at NAV) and the S&P 500 returned 9.70%. In 2023 the magnificent 7 returned 107.01%, S&P 500 Index returned 26.29% and RSP returned 13.65% (at NAV).
2 Magnificent 7 nickname for MSFT, META, AMZN, AAPL, NVDA, GOOGL, TSLA.
3 Bloomberg and FactSet as of February 29, 2024.
4 Bloomberg from August 2023 to February 2024 S&P 500 +13.9% vs Equal Weight 9.7%. February 2023 to August 2023 S&P 500 +14.5% vs Equal Weight 3.3%.
5 For the month of March EW +3.9% Mag 7 +1.4% S&P 500 +2.4%:
6: Source Invesco, early April flows from the start of April to April 18, the time of writing.
Past performance is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and shares, when redeemed, may be worth more or less than their original cost. See invesco.com to find the most recent month-end performance numbers. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Fund performance reflects fee waivers, absent which performance data quoted would have been lower. As the result of a reorganization on April 6, 2018, the returns presented reflect performance of the Guggenheim predecessor fund. Invesco is not affiliated with Guggenheim. An investment cannot be made directly into an index. Index returns do not represent fund returns.
RSP Standardized Performance
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Investments focused in a particular industry or sector, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
Stocks of medium-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
Shares are not individually redeemable and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 80,000, 100,000 or 150,000 Shares.
All data as of February 29, 2024, unless otherwise stated.
All data provided by Invesco unless otherwise noted.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice.These opinions may differ from those of other Invesco investment professionals.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their financial professional for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
Invesco Distributors, Inc.
